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MADRID, Jan 22 (Reuters) - Mid-sized lender Bankinter posted a 45 percent increase in net profit in 2014, reaching its highest level in seven years, as bad loans at Spanish banks stabilise and profits recover against an improving economic backdrop.
Spain's seventh-biggest bank by market value reported annual net profit of 276 million euros ($320 million), missing analyst expectations. Net interest income rose 19 percent to 755 million euros, topping forecasts, as funding costs fell.
Spain's economy emerged from recession in 2013 and is now posting one of the strongest rates of growth in the euro zone. The recovery, coupled with falling unemployment, has boosted the confidence of households and companies.
However, growth in loans has been slow for many Spanish banks after a property market crash that gutted earnings in recent years, and profit improvements have largely relied on falling provisions against soured real estate debts.
Bankinter said capture of new clients, a key metric for Spanish lenders after years of pain writing down bad loans, had risen 24 percent from the previous year. The lender said it had awarded three times as many mortgages in 2014 than in 2013.
The bank's lending to businesses grew 6.7 percent year-on-year, an encouraging sign for rivals which have also been trying to ramp up credit, especially to companies, as margins on loans are higher in that sector than on mortgages.
Bankinter trades at a premium to local peers and the sector because of the high quality of its loans, its bias towards affluent clients and steady cash-flow from its insurance business, according to broker BPI.
Bad loans as a percentage of total loans dropped to 4.72 percent at end-December at Bankinter -- one of the least exposed to the property sector -- compared with 4.98 percent one year ago.
Mid-sized peers Sabadell and Banco Popular are due to report earnings next week, alongside the country's third-biggest lender Caixabank.
The bank posted a "fully-loaded" Basel III core capital ratio of 11.5 percent, a measure of solvency. Bankinter emerged from October's Europe-wide stress tests as one of the most solvent banks in Spain.
$1 = 0.8630 euros Reporting by Sarah White and Sonya Dowsett; Writing by Sonya Dowsett; Editing by Paul Day and Mark Potter